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Target (TGT) forecast a surprise drop in holiday-quarter sales on Wednesday, blaming surging inflation and "dramatic changes" in consumer spending for a drop in demand for everything from toys to electronics. Shares of the big-box retailer fell more than 17% in early trading after it also said an early start to holiday season promotions and shoppers holding back for steeper discounts cut its third-quarter profit by half.
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Target’s net income in the third quarter fell by about half – to $712 million, or $1.54 a share, from $1.49 billion, or $3.04 per share, a year earlier. Revenue rose 3.4% to $26.52 billion from $25.65 billion a year earlier. The retailer made progress in clearing through much of its excess merchandise. Its inventory was up about 14% year over year compared with 36% in the second quarter and 43% in the first quarter.
Why it matters
Target echoed many of the same themes as its competitor Walmart. Consumers are feeling strained by higher prices for groceries, housing and other necessities. They are buying fewer full-priced items and holding out for promotions instead. To stretch their dollars, they are choosing smaller items, value packs or the retailers’ own, less-expensive brands. Walmart on Tuesday also spoke of a pullback in spending on apparel, electronics and similar items. But the discounter beat Wall Street’s expectations as it attracted shoppers with its low-priced groceries.
